Items To Consider For Partnership

Values: Do you share similar values?
Will you both fundamentally be moving in the same

directions?
Goals: Whats your BHAG? The Big, Hairy, Audacious Goal, as Jim Collins outlined in his book
Built to Last, is a good place to start the conversation. The differing answers may surprise you.
One partner might want the goal to be nothing short of market domination. For another, it might
be to develop a sustainable, lifestyle-oriented business that stays small, but generates good
incomes for all involved. Yet a third partner might want to pursue aggressive growth with the
intent to attract a buyer in five years. Ensuring everyone is one the same page as to where to take
the company is probably the most critical question to ask at the very beginning.
Conflict: How does your prospective partner deal with conflict and does it match your style of
dealing with conflict? In times of stress will your partner stay the course or cut and run? How has
she dealt with conflict in past personal and business relationships? What clues are you able to
uncover that reveal the real story? Airing differences of opinion between business partners is a
very healthy exercise, but only if managed correctly. Ground rules should be established at the
outset as to how to address and resolve issues so that a decision on which direction to take can be
made and embraced by all parties. The time to do this is not at the first argument. Having
agreements in writing lets everyone involved have a clear understanding of what is being
proposed. Put signatures down and be willing to revisit the agreement as required.
Making Decisions: Making decisions in a business is often like trying to make decisions in a
committee, nothing gets done. In fact, it can often stalemate a company, which results in business
failure. Therefore, you need to establish a decision-making process in advance so your business
operations can move along smoothly.
Work ethic: What type of hours will this person work? How much real work will they put into
those hours? How effective are they?
Roles: Whos going to do what? While the partners will most likely wear multiple hats at the
start, there should be a delineation of responsibilities with assigned roles that play to each
individuals strengths. This will ensure that all aspects of the business are covered while also
freeing up the day-to-days tasks from being performed by committee or consensus, slowing
down the process. If two or more partners completely overlap skill sets and there is not enough
of that work to require two partners, maybe one partner isnt needed.
Integrity: Do you trust this person? Is your trust based on real data or an emotional connection?
How has this person behaved in the past? Does this person consistently meet their big or small
commitments? Will this person do whats right, especially when it isnt convenient or profitable?
Dissolution: How will you dissolve the partnership? While no one goes into a partnership with
the intent of ending it prematurely, life events or a change in strategy may mean one or more
partners want out. How that will happen and under what financial terms are essential to iron out
at least in principle before starting the business. If it becomes too contentious or acrimonious
when it happens, the company could very well fail and everyone will lose. A buy/sell agreement
should be a must have from the beginning.
Death/Withdrawal: You should take into consideration what will happen if one of the principals
of a partnership dies or wants to leave the partnership. You need a buy/sell clause or agreement.
This establishes a method by which the partnership interest can be valued and the interest
purchased either by the partnership or individual partners. Usually for death this is funded with a
life insurance policy.

Disagreement: What happens if you and your partner reach an impasse, or an irreconcilable
difference on a fundamentally important issue? How will you handle it? Its important to have a
carefully thought through buy-sell agreement as a last resort.
Debt: If your partner becomes financially insolvent and declares bankruptcy, will you have to
take that partners creditors as your new partners? Usually in the case of bankruptcy the economic
interest of the insolvent partner reverts back to the other partner, which protects members of the
partnership.
Divorce/Family: Lets say youre a partner with Sally, but she and her husband Jim get a divorce.
If the divorce settlement gives Jim a half of Sallys interest in your partnership, do you really
want to be forced to take Jim into your partnership? You need to decide up front how you want to
handle this contingency. What if a spouse or kid later wants to join the business?
Disability: What happens if one of the partners is hurt and is no longer able to contribute time
and talent to the partnership? How will this affect their ownership interest and the way profits are
split?
Exit Strategy: What happens if someone offers to buy the firm? Companies can get blindsided
by an out-of-the-blue, unsolicited request to purchase the firm that pitted business partners
against each other. While potentially a long shot, it will be helpful to discuss such a scenario to
find out what it would take for the partners to sell and divest themselves of the entity. A side
benefit to the conversation will be to reinforce the collective BHAG.
Percentage of ownership: You should have a record of how much each partner is contributing to
the partnership prior to its opening. (People have short memories.) Typically, these contributions
are used as the basis for the ownership percentage, but this is not a cut and dry formula. For
example, one partner may put in a considerable amount of cash, with no plans to work in the
business, and a second partner may not invest cash, but will provide the sweat equity to make the
business a success. As such, the partner who works the business full-time may get a larger
percentage or vice versa. Thats up to you.
Allocation of profits and losses: You must decide if the profits and losses will be allocated in
proportion to a partners ownership interestwhich is the way it is handled unless otherwise
indicated. Also, will partners be permitted to take draws? A draw is generally a cash distribution
on a regular reoccurring basis similar to a paycheck, without any taxes withheld. Its considered
an advance payment of profits from the partnership business to the partners. You and your partner
need to make these decisions in advance.
Who can bind the partnership: Generally speaking, any partner can bind the partnership
without consent from the others partners. Imagine if your partner, without your knowledge,
signed a contract for a private jet time share. (Sounds cool, but not practical.) Thats certainly
something most small businesses cant afford and such a liability could be a significant risk to the
financial stability of your business. So you must clarify what type of consent a partner must
obtain before they can obligate your company.
What constitutes income in the partnership: Obviously you hope that your partnership makes a
profit. But how will partners draw income from those profits? If it's agreed that partners will draw
salaries, how much and how often? What percentage of the profits will be plowed back into the
business?
What property is included in the partnership and how is it defined: Partners often bring
property to the partnership that is less tangible that a piece of land or a building. Client lists,
computer applications, goodwill, process designs - whatever intellectual or personal property that
a individual brings to a partnership needs to be itemized and described in your partnership
agreement. And if a partner is bringing tangible property to the partnership, get that written down
and described, too.
How will/can partnership property be used by individual partners: Sometimes property use
is obvious. If two people decide to partner to open a restaurant and one partner brings a property
that she owns with a building suitable to being a restaurant on it to the partnership, that's
presumably what they would do. But sometimes it's not. Does the creator of the web application
want to allow the other partner(s) to modify it? Will the hairdresser share her clients? Get it sorted
out ahead of time to avoid a lot of thorns.
How will bank accounts be set up and how will accounting and tax matters be handled:
Obviously your partnership will need a business account. But how will signing privileges be set
up? Will your business use a line of credit? Can purchases be made without the consent of other
partners? Will your partnership use a bookkeeper and/or accountant or will one of the partners do
Finally, you should consider your options for working together. Here are the main ones and their
legal implications:
A Partnership is an association of two or more parties to carry on as co-owners of a single
business enterprise.
Joint venture is a contractual agreement that joins together two or more parties for the purpose of
executing a particular business undertaking. All parties agree to share the profit and loss of the
enterprise. The prior entities/partners retain and continue other business outside of the joint
venture. It is usually limited as to scope and duration.
An incorporated entity, such as an LLC or Corporation is an entity created by law that is also
treated like a person in that it has its own rights and responsibilities. There are many more
formal requirements for the creation and operation of an entity than a partnership or jv.
Other options can include one person being hired by another as an employee or independent
contractor/consultant, an arrangement for the sharing of profits or distributions, or other
relationship.

Items To Consider For Partnership

Uploaded by

Copyright:

Available Formats

Items To Consider For Partnership

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Items To Consider For Partnership

Uploaded by

Copyright:

Available Formats

Values: Do you share similar values?

Will you both fundamentally be moving in the same

life insurance policy.

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.